the price of electricity

The price of a kWh in Europe

Minute Lectures

Overview

This minute lecture presents concisely:• The main components of the electricity price• Its price evolution over the past 10 years• The main drivers behind this evolution

All information in this minute lecture is based on publicly available information from Eurostat. It shows averages, not necessarily reflecting individual market conditions.

AcknowledgementThis presentation is based on the report ‘Review of European Electricity Prices’ prepared by KEMA for Eurelectric Nov 2005

http://www.leonardo-energy.org/Files/KEMAReport.pdf

http://www.leonardo-energy.org/


Minute Lectures

The main components of the electricity price



Minute Lectures

This part includes all charges that can be directly allocated to the end use of electricity:

• VAT (only for residential customers)• Direct taxes on production, transmission and distribution

of electricity• Purchase obligations for energy from renewables or CHP• Carbon taxes• Stranded cost levies• Surcharges for public service obligations• ...

1) Taxes, levies and surcharges



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All regular payments for connection to and use of the transmission & distribution system

Including payments for system services and metering charges

Significantly lower for industrial users directly connected to the medium or high voltage network

2) Network Charges



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3) The residual cost or ‘energy component’

The ‘energy component’ consists of 1) The wholesale price for energy production2) The cost of the utility company for selling the kWh’s to

residential or industrial end-users

The wholesale cost is influenced by two main aspects:1) The fuel price (especially carbon fuels – oil, coal and gas)2) The efficiency of production



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The influence of liberalization

The above analysis shows that:

• Only a part of the electricity price is liberalized (the ‘energy component’)

• This liberalized part is strongly influenced by fuel prices

• Making power plants more cost-efficient only influences a fraction of the total end-user cost

Analysis shows that the shares of the three price components (taxes, network charges, energy component) differ widely between European countries



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Large national differences (1/2)

For industrial end-users, 24,000 GWh/y (or 10,000 GWh/y), max. 4000 kW, 6000 hrs/y, connected to medium voltage grid, 2004 (or 2003):



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Large national differences (2/2)

For residential end-users, levels of consumtion in kWh mentioned between brackets, connected to low voltage grid, 2004 (or 2003):



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Price evolution (1/2)

The evolution of the end-user prices between 1995 and 2004 for industrial (left) and residential users (right), in nominal values and in real terms (= taking inflation into account):



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Price evolution (2/2)

The rise of the nominal prices the past 5 years can be explained by:

Increasing taxes• Mainly due to the Kyoto protocol, leading to Carbon taxes

and obligations for renewable generation

Rising prices of oil, coal and natural gas• Representing 51% of the European electricity production



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Increasing taxes

Price evolution and share of taxes for industrial users (24 GWh, 1995-2004) and residential users (3.5 MWh, 1995-2004, EU 15):



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Evolution of oil and coal prices

Evolution of oil & coal prices (1995 – 2004) based on nominal prices (Euro)



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Price evolution: conclusions

Tax increases were an important factor in the rise of the electricity end-user prices between 2000 and 2004

The influence of increasing taxes was larger on the residential prices than on the industrial prices

The evolution of fuel prices show correlation with the evolution of electricity prices

Especially for industrial electricity prices, the correlation with fuel prices is strong



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Round-up

Electricity end-user price = taxes + network charges + ‘energy component’

Share of the components differ largely between residential and industrial end-users, and between European countries

End-user prices (in real terms) for households went down between 1995 and 2000 and have since then been stable

End-user prices (in real terms) for industry went down between 1995 and 2000 and have since then been rising

The evolutions of the end-user prices the past five years have largely been influenced by taxes and fuel prices



Minute Lectures

Links and references

• Review of European Electricity Prices>>

http://www.leonardo-energy.org/Files/KEMAReport.pdf


the price of electricity

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